SoftCare Blog

OK, I want to drink the Kool-Aid – how would allowing insurance sales across states work?

There has been lot of talk on legislative proposals to allow Insurance Sales across state boundaries. As the old saying goes “that is fine but the devil is in the details”. Part of the issue with cross-state insurance plans was addressed in the Employee Retirement Income Security Act of 1974 (ERISA) which allows companies with employees in multiple states to have minimum standards for retirement, health, and other welfare benefit plans. This same concept is now being touted for individual mandates to the Affordable Care Act (commonly referred to as Obamacare). Again, a great concept but it’s the business details that cause issues with anything. How would an insurer market, sell and maintain insurance in multiple states? Policy makes have broached the subject but really have not looked at how this will work in practice. The Commonwealth group has created an excellent article on the subject (see below) but in essence, it’s the economics and intricacies of an insurance company setting up a new provider network that is the key challenge.

Currently, out-of-state insurers have no current relationship or market share with in-state hospitals and physician practices; they would be forced to establish in-state networks that can compete with established in-state carriers.

The out-of-state insurers would be at an economic disadvantage as they would need to negotiate sufficiently low payment rates to enable them to offer competitively priced plans. Out-of-state insurers would only be able to offer plans with higher premiums than their competitors, producing no net benefit to consumers unless an insurer takes a great leap of faith to fully commit to a state. As profitability is incredibly important to any business, what smart insurance business executive would commit to selling insurance in another state without some guarantees of increasing profitability? There of course will be some states with sufficient populations to make this a good investment for insurance executives. How many and how prevalent it will be is to be determined

The Commonwealth fund has produced a great overview of the details of how allowing insurance sales across states work – see the attached link:

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